This Week's Focus: The effects of the sanction to Apple

Anchor
Friday, 02 of September 2016

This Week's Focus: The effects of the sanction to Apple

The European Commission imposed a sanction for Apple Inc. 13,000 million euros on the grounds that benefited from illegal state aid in Ireland from 2003 to 2014. It is not the first time that Brussels penalizes multinational companies tax engineering practices to understand that harms free competition within the European Union.

Thus, the Competition Commissioner explained that the tax advantages granted Ireland Apple allowed him taxed on the profits arising in Europe, Middle East, Africa and India to a corporate tax rate of almost zero, away from 12.5% Ireland sets tax rate, according to information gathered by El País. This rate, by the way, is almost half that of other members of the Union, which is 30% in Spain.

Tax competition between countries enables movement of revenue from income tax to lower tax territories, reducing the total collection of States and exacerbating the problems of public deficit.

Reactions against

Apple, the Irish government and the US Treasury They have positioned themselves against this sanction for different reasons. The company argues that because already taxed under the laws of each country, Ireland because not want to lose its reputation favorable country for business location and the US Treasury because he understands that the EU has overstepped the investigation of an American company.

Ireland is one of the countries more easily for business, according to the index published by the World Bank, where 20 is the highest score. Among other reasons, membership in the EU, more in line with legislation and standards Anglo-Saxon corporate tax rate the lowest in the developed world, have a decisive influence. Therefore, many multinationals have their European headquarters in Ireland and consolidate their profits there.

The view of Apple

Apple generates 20% of its business in Europe, according to information from the company on its website.

Since the type of business Apple does not differ greatly from one region to another, it is reasonable to conclude that 20% of profit before tax for the group to have its origin in Europe, which would mean, in 2014, a tax base of 7,900 millions of euros. The charges payable, depending on whether only taxed in Ireland to 12.5% or make it to the European average of around 25%, oscillate, just for 2014, between 980 and 1,975 million euros.

According to the information on which the Commission relied, Apple would have paid only less than 1% tax in Europe, ie in 2014 just over 79 million euros.

The actual tax rate Apple, derived from their accounts is 20%.

The Apple turnover and profits grew strongly from 2010 to 2014, and in 2015. However, recently pretax profit group and decreased in the last quarter (June 2016) totaled 9.264 million euros.

The sanction of the European Commission as equivalent to just over Apple quarterly profit, so it has a significant impact on the income statement for the group. It is therefore logical that the company raised the sanction recourse in the courts of the EU.

The situation in Ireland

From the point of view of Ireland Business-friendly reputation aside, it makes little sense to oppose since the country's fiscal situation needs these revenues. The collection of 13,000 million euros alone would mean the equivalent of a quarter tax revenues.

It is recalled that Ireland had to be assisted by the EU in 2010 as a result of the decision to save its banking sector by more than 67,000 million in loans. Ireland has a public debt of 93.8% of GDP and a deficit of -2.3%. GDP grew 2.3% annually, although in the first quarter of 2016 contracted. Unemployment is above 8%.

Market reaction

The effects of the sanction on the price of Apple have not been evident so far. Until August, so far in 2016, action has done about 6% worse than the American market, as measured by the S & P 500. The effect of lower profits reported weighed more for now, but given recent developments of the company and the amount of the penalty, if confirmed by European justice, it can impact on the price of a more obvious way.

The consensus of analysts expected revenue for Apple stuck around 210,000 million euros between 2016 and 2019 and profit before lower than in 2015, ranging between 55,000 and 61,000 million euros of tax. The sanction to be attributed to an exercise would imply a decrease in expected profit for the year of 25%.